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Global economic fragmentation calls for proactive, unified ASEAN strategy
Centering market integration efforts around industry-specific regional value chain development can position ASEAN as a resilient and trusted hub within global and regional production networks.
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Delegates from Southeast Asian nations attend an ASEAN Central Bank Governors Meeting and Financial Institution CEOs Dialogues in Nusa Dua, Bali, on March 30, 2023. (Antara/Nyoman Hendra Wibowo)
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fter decades of expanding cross-border flows of goods, services and capital, economic globalization has come into question. Terms suggesting reversal of the trend including geoeconomic fragmentation, decoupling, deglobalization and “slowbalization” have become common.
For some, global economic fragmentation is already here. They point to slowdowns in foreign direct investment (FDI) and shortening of supply chains a la reshoring, nearshoring and friend-shoring. Concerns about supply-chain resilience, rising geopolitical tensions and technological rivalry fuel inward-looking policies further.
We call for caveat emptor for two reasons.
First, the data and evidence cannot confirm that the setbacks are structural as opposed to cyclical; the magnitude itself is still being debated. Intent to relocate business operations does not always translate into action. Investments are costly and sticky, and intangible networks and expertise are neither portable nor replicable, at least in the short term.
One such example is Apple in China, whose enormous machinery stock and established supplier pool has left the company with “few viable paths out and none in the short term”, according to experts and former executives.
Second, throughout history, globalization was neither a preordained outcome nor an uninterrupted process. It was driven as much by government policy as business actions. In the same vein, deglobalization is not a fait accompli; its future trajectory depends on policy and business choices made today and tomorrow.
Attracting 12 percent of global FDI and contributing 8 percent of global exports, ASEAN has a key role and significant interest in shaping that trajectory. As long-term beneficiaries of globalization, its member states will bear the effects of global supply chain restructuring, good or bad, and have a stake in preserving global trade and integration. For ASEAN, the long-term risks and threats of global economic fragmentation far outweigh its short-term opportunities.
